“Internationalization is a strategic challenge for French companies”

(Barometer CCI International, 2014, p. 5)

If it was traditionally seen as a strategy of growth among others, internationalization today tends to be the central axis of small- to medium-sized enterprises (SMEs). Expanding markets and the growing importance of emerging markets offer new opportunities for development, which more and more SMEs are choosing to take advantage of [STP 14]. According to the Direction générale du Trésor (French Directorate General of the Treasury), 11.5% of SMEs exported on a regular basis in 2014, with a constant increase in this proportion since the end of 2000.

Although international development has often been studied through the prism of export, it would, however, appear that SMEs are resorting to more appealing entry methods with a view to becoming established on a long-term basis in the foreign markets. Today many of them are opting for high-commitment entry modes such as joint ventures, foreign acquisitions or the creation of new subsidiaries abroad. INSEE [INS 15] statistics showed that in 2014, almost 11% of French companies’ foreign subsidiaries were owned by independent SMEs. The Baromètre CCI International (French CCI international barometer), 2014, concurs with this, stating that more than 7% of SMEs exporting on a regular basis envisage setting up their first subsidiary abroad by 2017. This attests to the growing complexity of SMEs’ internationalization strategies in the face of the evolution of the environment in which they operate. Growing environmental instability, acceleration in the diffusion of technologies, improvement in transport infrastructure and communication or even the decompartmentalization of economies are as much opportunities for SMEs as sources of competition. Internalization should therefore no longer be considered as a  question of conquering new markets or new market shares, organizations duplicating “identical activities in different economic spaces where they become established. […] They aim more and more to spread their production and supply chain between the different economic spaces to make best use of the different elements they each offer while combining its successive stages in the most efficient and cost-effective way so as to best be of service to their customers” [LEM 13, p. 8].

Literature classically highlights several incentives for the internationalization of SMEs such as the escalation of competition on the domestic market, product maturity, access to resources, strategic assets valuation or the follow-up on international customers [SIN 01, MOE 15, PU 15]. Other elements have also been identified such as the pursuit of flexibility, the maximization of return on investment with pressure from shareholders, allocation of the assets portfolio, reconfiguration of the value chain or the enhancement of the business image in the eyes of the stakeholders. Milliot and Tournois [MIL 09] highlight, in this regard, that environmental mutations now expose companies to different and often contradictory forces encouraging them to rethink the organization of their international activities [JAU 13].

The choice of location is at the heart of the agenda for companies wishing to penetrate foreign markets [DUN 09]. It is a highly strategic decision, influenced as much by the attributes of the company and its connections than by the specific features of the countries of origins and/or host countries (institutions, cultural factors, endowment of resources, etc.). This decision represents an important element of competitiveness because localization can be a source of substantial gains and produce high underlying costs, and at the same time require the commitment of a significant amount of resources [ALC 07, BOU 10, COL 11]. This is particularly important in the case of SMEs due to their limited resources and competences [SCH 13].

According to Buckley and Ghauri [BUC 04], companies nowadays tend to segment their business more delicately. They look for locations offering optimal conditions in order to take advantage of the benefits of each of them. This approach also applies in the case of SMEs, since, as highlighted by the Public Investment Bank [PUB 13, p. 3], they “return more and more to classic economic models and invest strongly (abroad) in a countercyclical manner”. If western SMEs used to realize most of their activity in local or physically close markets (similar level of development), growing economic openness and market globalization led to a redistribution of investments to the benefit, in particular, of emerging markets. Although it remains the preferred destination of French investors, data published by the UNCTAD (2016), however, show that the European Union is losing importance to the benefit of emerging markets, especially the BRIC (Brazil, Russia, India and China) – despite a surge recorded in 2015.

Therefore, French businesses do not hesitate to target distant markets in order to seize upon new business opportunities abroad. In light of this finding, it seems that the study of new forms of internationalization of SMEs deserves further attention [KAL 12]. It therefore seems appropriate for us to focus on ways that are more binding than simply exportation, having the location of SMEs at the heart of the matter.

The question of SMEs’ internationalization gave rise to several theoretical approaches. Based on the study of four Swedish firms, the Uppsala model [JOH 77] stipulates, first, that international business development is primarily driven by access to new markets. It follows a processual logic made up of stages linked to one another in a linear fashion, the level of commitment increasing according to expertise gathered abroad. Concepts of psychic distance, establishment chain and experimental learning are the pillars of analysis and adds its increasing momentum to the original model [BIG 06]. According to Johanson and Vahlne [JOH 77], with a lack of expertise and knowledge of international operations, companies tend to initiate their expansion in local markets via low commitment market entry methods. The expertise accumulated contributes to confidence building and encourages them to increase their level of commitment and to target distant markets. The Uppsala model explains the process of internationalization in its entirety, allowing us to jointly explore the choice of location and market entry methods [MEI 10]. The adjustments made over the years allowed Johanson and Vahlne to revise their model to include reticular and strategic dimensions [JO 09, VAH 13].

Although the Uppsala model constitutes a reference framework in the international business literature, the emergence of “born global” companies questions this incremental and procedural approach and calls for a review of internationalization strategies. Born global companies, which were identified by Rennie [REN 93] and theorized by Oviatt, are distinguishable from traditional businesses by their early, rapid and multimarket internationalization. Unlike Johanson and Vahlne [JOH 77], for whom international development is determined by the concepts of distance and experience, defenders of the born global approach promote the existence of businesses becoming considerably internationalized from their very creation, regardless of distance and their lack of experience. The innovative performance of these firms has given birth to a new field of research: International Entrepreneurship. Several considerations can be identified, including international orientation and the experience of the Director and his team, belonging to a network or not, the exploitation of strategic assets, the pursuit of a niche strategy, competitive strength or pressure from investors, among others [RIA 05, BAL 11, CAB 11]. These companies, whose business model was international from inception, do not hesitate to export to a large number of countries – nearby or further afield despite lack of experience – in order to maximize their profits. In this way, they seem to be less responsive to any risk that may exist than to the willingness to seize new business opportunities abroad [OVI 94, CHE 03, MCD 03, KAL 12]. Therefore, the emergence of Born Global companies challenges existing procedural approaches, calling on researchers to broaden existing models to better understand these new forms of SME internationalization. Regardless of the approach chosen, the implementation of an internationalization strategy means that several key decisions are taken such as the choice of location, the entry method or even the proposition with which to penetrate the target market.

Location choice has been the subject of many contributions in various disciplines such as space economy, geography and even international management. The research conducted so far has emphasized the central role of natural resources, labor costs, incentives, geographical distance as well as the size of the target market in the assessment of potential locations [DUN 93, DUN 00, DUN 08a]. Little attention has however been paid to the individual dimension in the analysis [SCH 13]. In fact, the choice of location does not necessarily come from a rational logic based on the study of purely quantitative criteria but also involves other subjective factors related to the affinities and/or experiences of the organization and of the individuals of which it is constituted [ROD 09, AHA 10, NOW 16]. The consideration of the latter elements is the result of work carried out by researchers in International Entrepreneurship.

A criticism against existing work lies in the lack of integration of timing into analysis. For a long time, researchers have studied the choice of location in a static sense. Location-specific advantages, which are far from established, are nonetheless called into question in light of rapid changes in the environment that have been observed in recent decades. Companies no longer hesitate to promptly review their localization strategies, challenging territories in order to benefit from any incentives being offered and changing, where appropriate, location when a territory offers benefits significantly greater than those currently held. Localization should not be regarded statically but rather in a dynamic manner, the latter being subject to constant adjustments and revaluations [LEM 13]. In addition, localization strategies can only be correctly understood by incorporating the timing aspect and by taking into account interactions operating between the individual, organizational and environmental domains. We adopt a procedural approach, as advocated by Welch and Paavilainen-Mäntymäki [WEL 14], in addressing localization strategies chosen by SMEs, and more specifically in addressing the gateway strategies adopted by SMEs.

Mutations in the environment drive SMEs to periodically review their internationalization strategies and to adopt new approaches to penetrate foreign markets. Gateway strategies are part of this. According to the OECD [OEC 16], a large part of production is no longer only destined to serve the local market but also to be re-exported to the country of origin or Third World countries. The host country is then used as the vantage point allowing SMEs to reach other markets that are more difficult to access. Martin [MAR 07] defines gateway strategies as an “offensive (approach) with the aim of getting a foothold in new markets which are under consolidation for access to other larger markets”. Javalgi et al. [JAV 10, p. 209] go further in stating that the choice of location and “the level of commitment to the future of the company are not only influenced by the growth potential of the [target] market but also by its capacity to serve as a gateway to other markets [of the zone]”. Gateway strategies represent, in other words, new expansion methods – proactive or reactive – the commitment to which is guided by the willingness of the firm to get a foothold in this market in order to penetrate the closer, often much larger countries. The innovative nature of these strategies raises the question of the adequacy of the existing theoretical models – such as the Uppsala model or the born global approach – and appeals for a review of the internationalization strategies of SMEs. Continuing the work of Javalgi et al. [JAV 10], we consider that, if many key factors influencing the choice of location have already been identified, the decision to invest in a country as a gateway office to other markets remains unexplored. This raises the question of the use of gateway strategies and shows the value in studying the trend using a processual logic. For that reason our research spans literature relating to the internationalization of SMEs, on the one hand, and the stakes of localization – including gateway strategies – on the other.

This book aims to understand why and how SMEs implement gateway strategies in order to develop international markets. It is a question of identifying, in the first instance, the motivations driving SMEs to internationalize via gateway strategies. It is also about pursuing these strategies with a view to promoting key steps, the actions undertaken as well as the difficulties encountered by the leaders. The book is composed of six chapters divided into three parts. Part 1 aims to introduce the theoretical concepts used: internationalization of SMEs, localization strategies and the conceptual framework.

Chapter 1 presents a review of existing work relating to the internationalization strategies of SMEs. The processual approaches – including the Uppsala and Innovation models – are described in their original version. They have raised different constraints, leading authors to periodically review their models. We then present the work carried out by researchers in international entrepreneurship on companies who are born global and we conclude with an insight into these two approaches.

Chapter 2 relates to the localization strategies of SMEs. The first section focuses on choices of location by addressing both external and internal factors essentially relating to the CEO and his team. The second section presents gateway strategies using a chronological perspective in order to identify their attributes and show the trends of the concept.

Part 2 focuses on clarifying the methodological framework adopted to carry out our work. This part presents the epistemological and methodological position chosen (Chapter 3) and introduces the case study of selected companies (Chapter 4).

Chapter 3 presents the methodology that is adopted in the framework of our work, namely the study of five manufacturing SMEs in the Rhône-Alpes region selected on the basis of their stage of commitment in the gateway strategy.

Chapter 4 introduces each of the five businesses studied. It traces the internationalization paths of SMEs, from their creation up until the roll-out of gateway strategies. We pay particular attention to internationalization approaches in order to highlight crucial events or other facts that have had a significant impact on the paths of the companies.

Finally, Part 3 – consisting of Chapters 5 and 6 – is dedicated to the development of the empirical study carried out.

Chapter 5 seeks to explain why SMEs are introducing gateway strategies. It begins with an intracase analysis highlighting the motivations expressed by each of the companies in our sample. The intercase analysis enables us to bring to the fore the convergence and divergence points between each of the cases.

Chapter 6 describes, in turn, how SMEs implement their gateway strategies. Just like Chapter 5, it begins with an intracase analysis highlighting the measures taken but also the difficulties encountered by each of the SMEs. The intercase analysis traces the general implementation process of these strategies, highlighting, in particular, the key role of networks in the progress and success of these strategies.